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QUESTION 1 Suppose a budget equation is given by p1x1+p2x2=m where price of good 1 is $1 (p1=1), price of good 2 is $2 (p2=2), and budget is $100 (m-$100). Please draw the budget line by putting the quantity of good 1 (x1) in the horizontal axis (x-axis) and the quantity of good 2 (x2) in the vertinal axis (y-axis). What is the slope of the budget line? O -0.5 O-1 O-2

QUESTION 1 Suppose a budget equation is given by p1x1+p2x2=m where price of good 1 is $1 (p1=1), price of good 2 is $2 (p2=2), and budget is $100 (m-$100). Please draw the budget line by putting the quantity of good 1 (x1) in the horizontal axis (x-axis) and the quantity of good 2 (x2) in the vertinal axis (y-axis). What is the slope of the budget line? O -0.5 O-1 O-2

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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QUESTION 1 Suppose a budget equation is given by p1x1+p2x2=m where price of good 1 is $1 (p1=1), price of good 2 is $2 (p2=2), and budget is $100 (m-$100). Please draw the budget line by putting the quantity of good 1 (x1) in the horizontal axis (x-axis) and the quantity of good 2 (x2) in the vertinal axis (y-axis). What is the slope of the budget line? O -0.5 -1 O-2 QUESTION 2 Using the budget set from the first question, consider the following two consumption bundles: (x1, x2) = (50, 30) and (x1, x2) = (20, 40). Can you afford the two bundles with the budget constraint: p1x1+p2x2=m where p1=1, p2=2, and m=$100? O Consumer can afford both bundles. O Consumer cannot afford (x1, x2) = (50, 30) but can afford (x1, x2) = (20, 40). O Consumer can afford (x1, x2) = (50, 30) but cannot afford (x1, x2) = (20,40). O Consumer cannot afford both bundles. QUESTION 3 Now consider that the government decides to impose a lump-sum tax of $20 and a tax on x₁ by t-0.2 (p1*=p1+t-1.2). Thus, the new budget equation is given by p1*x1+P2x2=m* where p₁*-1.2, p2-2, and m*=$100-$20-$80. Using this new budget set, consider the following two consumption bundles again: (x1, x2) = (50, 30) and (x1, x2) = (20, 40). Can you afford the two bundles with the new tax-imposed budget constraint? O Consumer can afford both bundles. O Consumer cannot afford (x1, x2) = (50, 30) but can afford (x1, x2) = (20,40). O Consumer can afford (x1, x2) = (50, 30) but cannot afford (x1, x2) = (20,40). Consumer cannot afford both bundles.
Transcribed Image Text:QUESTION 1 Suppose a budget equation is given by p1x1+p2x2=m where price of good 1 is $1 (p1=1), price of good 2 is $2 (p2=2), and budget is $100 (m-$100). Please draw the budget line by putting the quantity of good 1 (x1) in the horizontal axis (x-axis) and the quantity of good 2 (x2) in the vertinal axis (y-axis). What is the slope of the budget line? O -0.5 -1 O-2 QUESTION 2 Using the budget set from the first question, consider the following two consumption bundles: (x1, x2) = (50, 30) and (x1, x2) = (20, 40). Can you afford the two bundles with the budget constraint: p1x1+p2x2=m where p1=1, p2=2, and m=$100? O Consumer can afford both bundles. O Consumer cannot afford (x1, x2) = (50, 30) but can afford (x1, x2) = (20, 40). O Consumer can afford (x1, x2) = (50, 30) but cannot afford (x1, x2) = (20,40). O Consumer cannot afford both bundles. QUESTION 3 Now consider that the government decides to impose a lump-sum tax of $20 and a tax on x₁ by t-0.2 (p1*=p1+t-1.2). Thus, the new budget equation is given by p1*x1+P2x2=m* where p₁*-1.2, p2-2, and m*=$100-$20-$80. Using this new budget set, consider the following two consumption bundles again: (x1, x2) = (50, 30) and (x1, x2) = (20, 40). Can you afford the two bundles with the new tax-imposed budget constraint? O Consumer can afford both bundles. O Consumer cannot afford (x1, x2) = (50, 30) but can afford (x1, x2) = (20,40). O Consumer can afford (x1, x2) = (50, 30) but cannot afford (x1, x2) = (20,40). Consumer cannot afford both bundles.
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